California LLC: Everything You Need to Know
California LLC you can tailor your business based on your personal preference. LLC is a business entity comprised of one or members owning a certain share.5 min read
2. Naming Your LLC
3. Starting an LLC
4. Operating Agreement
5. Registered Agent
6. Form LLC-12
7. Additional Fees and Taxes
9. Sales Taxes
10. Foreign LLCs
What is a California LLC?
When it comes to California LLC, you can tailor your business based on your personal preference. An LLC is a business entity comprised of one or members owning a certain share of the company. Many companies prefer an LLC over a corporation because of certain legal and financial protections. Banks and insurance companies cannot forge LLCs.
Forming an LLC in California provides a wide array of advantages, most notably limiting your liability based on your portion of the investment. In other words, your personal assets are safeguarded from potential seizure based on business activity from the LLC. Instead, profits and losses from the LLC flows into the hands of members so they can declare profit and loss on their personal returns, otherwise known as pass-through taxation. Payments to members from the LLC is earned income.
Also, the state permits a “multi-tiered ownership,” which allows C and S corporations to become owners of an LLC which provides additional liability and tax advantages. In addition, companies can choose the pass-through method or as a corporation.
Naming Your LLC
There are strict standards for naming your LLC, so conduct research to ensure that your name cannot be confused with another business entity. Additional paperwork is required if you intend to include the words “lawyer” or “doctor.” Moreover, you cannot use words that confuse your business with a federal agency, such as FBI or Secret Service.
You can check names by searching the database on the Secretary of State website. Also, check for any trademarks through the United States Patent and Trademark Office (USPTO) website. You can reserve a name up to 60 days from the filing date and pay a $10 fee. The application must be hand-delivered or mailed to the Secretary of State office.
In addition, reserve the domain name to prevent others from using it online, even if you do not intend to start a website. Consider email addresses when picking your name as well. You can get a professional email with Google.
Starting an LLC
LLCs are easy to start in California, but there are certain standards you need to meet. To start, register your company with the Secretary of State after filling out the necessary paperwork. The most important form you need is Form LLC-1.
Form LLC-1 provides such information as:
- Registered Agent
- Name of the LLC
- Primary Address
Processing fees for the LLC Form-1 is $70. Further, you need to submit an Articles of Organization, which officiates your business. The time to process your request varies based on the nature of your request, but the process can be hastened by paying higher fees. You are the defaulted organizer if you draft the document, but you can name any person within the organization as a manager or member. The Articles of Organization will ask if the company will be manager-oriented or managed by a single owner and if is manager-managed or member-managed.
An LLC with more than one member is also required to have a limited liability operating agreement among its members. You can submit the operating agreement 90 days after submitting your LLC Form-1. At least one member needs to have an operating agreement in place. An operating agreement is a document that outlines:
- Terms and Conditions
- Pay Structure
- Management System
- Voting Rights
- Removal or Additions of Members
- Amending the Agreement
Further, you must create an Operating Agreement if your company is manager-managed for record-keeping purposes. California’s laws mandate that manager-managed businesses are legal only when an Operating Agreement and Articles of Organization is filed.
A registered agent is mandatory in California. Registered agents are appointed representatives of a company to receive and send legal documents on behalf of the LLC. Agents must be residents of California and have an address registered on the Articles of Organization. LLCs cannot be designated as the registered agent. The agent must have an affiliation with the LLC, and corporate agents need to file a Code Section 1505 with the Secretary of State before acting as an LLC representative. Further, the state retains a list of various service companies that can be agents.
Form LLC-12 is also known as a Statement of Information document. State of Information includes:
- Filing Number
- LLC Name
- Registered Agent Name
- Managers or members
- Email Address (if the LLC wishes to get electronic notifications of renewals or any other reminders from the Secretary of State office)
It needs to be submitted within 90 days of the filling date for the LLC-1. Further, it needs to be filed on a biennial or annual period. There is a filing fee of $20, but $250 if you miss the 90-day grace period. You can get the form from your Secretary of State, and it must be either mailed or hand-delivered to the office. Additional documentation can be submitted online or by mail/hand-delivery.
Additional Fees and Taxes
In addition, LLCs need to pay the minimum $800 franchise tax on an annual basis, and LLCs with incomes above a particular threshold should pay thee out of total annual income. LLCs need to submit Form 568, which is 4th day and 15th month after the LLC’s date of the taxable year. You should also consider other fees and taxes, such as fuel or alcohol taxes. Contact the FTB on the latest regarding fees and taxes.
You need an employer identification number (EIN) regardless of how many members or employees you have. An EIN is a number used to identify your business, amounting to a social security number. You need an EIN for the following reasons:
- Filing state and federal taxes
- Creating a business bank account
If you create a sole-member LLC, you only need an EIN if you have employers working you, or if you choose a corporate tax structure. You can get an EIN via the IRS website, and there is no fee.
You may need to register for state sales taxes if you are selling goods. You would have to collect taxes on any products or items you sell. You need to go to the California State Board of Equalization (BOE) to register accordingly. Employer tax registration can be completed via the California Employment Development Department (EDD).
Foreign LLCs need to register to conduct business in the state by going to the Secretary of State. You need Form LLC-5, which is the registration application, and pay the $70 fee. One benefit of a Foreign LLC is the ability to operate a single entity in other states. However, the Foreign LLC should appointed a California-based agent, including a Certificate of Good Standing. A Certificate of Good Standing shows that the LLC is current and can legally conduct business. You need a certificate to:
- Seek financing
- Create your business as a Foreign LLC
- Renewing permits and licenses
If you want to learn more about California LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel lawyers specialize in LLC formation and can help clients make the right decisions for their business. Our team will also help you in matters of taxation and ensuring that your LLC remains in good standing with authorities.